SSE/EFI Working Paper Series in Economics and Finance
No 257:
Markets and Cooperation
Giancarlo Spagnolo
Abstract: Why do money and markets crowd out cooperative relations?
This paper characterizes the effects of intertemporal preferences, money,
and markets on players' ability to cooperate in material-payoff supergames.
Players' aversion to intertemporal substitution facilitates cooperation by
decreasing their evaluation of short-run gains from deviations and
increasing that of losses from punishments. Goods' markets and money may
hinder cooperation by allowing players to reallocate short-run gains from
deviations in time, at some cost. Allowing for free intertemporal
reallocation of payoffs, perfect financial markets always make cooperation
harder. Financial markets' imperfections facilitate cooperation by opposing
this effect.
Keywords: Cooperation: repeated games; prisoner's dilemma; commons; reciprocal exchange; implicit contracts; collusion; institutions.; (follow links to similar papers)
JEL-Codes: C72; D51; O17; (follow links to similar papers)
20 pages, September 10, 1998, Revised September 20, 1999
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